Notebook manufacturers shift to China to lower costs

Notebook manufacturing is rapidly migrating to mainland China, a move that will inevitably lead to lower laptop prices.

The major Taiwanese notebook makers--which design and manufacture a substantial portion of the notebook PCs sold worldwide--have recently detailed plans to produce notebook components and perform partial assembly in China next year. These companies also are lobbying for laws that would allow them to produce complete notebooks on the mainland; right now, it's illegal.

Late last month, for instance, Quanta--which has made portables for Dell Computer, Gateway and Apple Computer, among others--received approval from the Taiwanese government to invest $26 million in a facility for manufacturing motherboards, cases and other components in Shanghai. Parts will start to come out of the facility in the second quarter.

First International Computer, which has made notebooks for Hewlett-Packard, will open a notebook plant in the first quarter. Compal, Acer, Arima and others have disclosed similar plans for plants in Shanghai or southern China.

Inventec, another manufacturer, has said it will open a facility capable of producing 200,000 notebooks a month in China, according to the Commercial Times. Most of the notebooks will be made for Compaq, according to Inventec's chairman.

In the end, the mass migration will lead to lower manufacturing costs and, inevitably, to lower notebook prices.

"Land is cheaper, the cost of doing business is cheaper," said Gartner analyst Todd Kort. Other factors, of course, will contribute to lower notebook prices, including increased capacity worldwide in monitor manufacturing.

Labor is also cheaper in China. Monthly wages for a factory employee are roughly $650 less in China than in Taiwan, said Victor Tsan, director of the Institute for Information Industry, a Taiwanese analysis firm associated with the government.

"A lot of manufacturing is moving to the mainland," added Bob O'Donnell, an analyst at IDC. "There will be some impact on" costs.

U.S. customers will likely see benefits from the cost reductions. In 1999, Taiwanese manufacturers accounted for 49 percent of the world's notebooks, according to Tsan, and the vast majority of these notebooks are exported.

"Taiwan is the No. 1 manufacturer," O'Donnell said. "Dell, HP--almost all of
their stuff is made by contract manufacturers."

The China boom, however, remains contingent on diplomatic niceties. Although relations have thawed between the two countries, negotiations between China and Taiwan remain tense.

Taiwanese investment in China, in fact, is only possible through legal maneuvering. Technically, Taiwanese companies are not present in China. Instead, Taiwanese manufacturers form shell corporations in the Cayman Islands and other countries of convenience, according to numerous executives in Asia, and then funnel investment and management expertise through there.

While the Taiwanese government has tacitly permitted investments in mainland motherboard and monitor factories, notebook manufacturing has been legally forbidden on grounds of national security. The law, though, has been under attack by technology companies and has become a hot political topic.

In addition, Chang Chi, an officer at the Ministry of Information Industry of China, visited Taipei two weeks ago and discussed manufacturing plans with executives from First International Computer. Both countries also are slated to join the World Trade Organization.